Digital Payments, Monetary Conditions, and Household Consumption: Evidence from Indonesia

Abstract

The rapid expansion of digital payments in Indonesia has generated growing interest in understanding how payment digitalization and monetary conditions are associated with household consumption. This study aims to examine the short- and long-run relationships among Quick Response Code Indonesian Standard (QRIS) transactions, inflation, Bank Indonesia's policy interest rate (BI-Rate), the velocity of money, and household consumption. A quantitative approach was employed using 48 monthly observations from January 2022 to December 2025, obtained from Bank Indonesia and Statistics Indonesia (BPS). Annual household consumption and nominal gross domestic product (GDP) data were disaggregated into monthly series using the Denton temporal disaggregation method. The data were analyzed using an autoregressive distributed lag (ARDL) model, bounds testing, and an error correction model (ECM) in EViews. The results indicate that QRIS transactions and the velocity of money exhibit positive and statistically significant relationships with household consumption in both the short and long run. Inflation exhibits a positive and statistically significant long-run relationship but is not statistically significant in the short run. The BI-Rate is not statistically significant in the long run, although positive relationships are observed at specific short-run lags. The bounds test supports the existence of a cointegrating relationship, with an estimated speed of adjustment of approximately 22.2% per month. These findings suggest that payment digitalization and the velocity of money are consistently associated with household consumption, whereas the relationships between monetary conditions and consumption vary across time horizons. The study highlights the importance of coordinating digital payment development with monetary policies aimed at sustaining household purchasing power.